Cramer: Cosmetic Maker a Beautiful Stock?

After making some rather harsh comments about this company in the past, Jim Cramer said "I am now convinced that this is a genuine turnaround play, albeit a speculative one."

The Mad Money host was talking about Elizabeth Arden (TICKER: RDEN), a maker of cosmetics and fragrances.

Earlier this month Cramer said some critical things about the company on Squawk on the Street. "Namely I said that it was wrong to mention the best of breed Este Lauder and Elizabeth Arden in the same sentence," Cramer admitted.

Largely Cramer was responding to the recent weakness in the stock that was triggered by weaker than expected earnings that showed holiday sales were soft, at best.

"Our net sales results were below original guidance due to lower than forecasted sales in department stores as well as softer than anticipated holiday sales at one of our major mass retail accounts," Chairman, President and CEO E. Scott Beattie said in a statement.

And the company lowered its full-year earnings forecast to between $2.30 and $2.50 per share from between $2.55 and $2.70 per share. Analysts were looking $2.66 on average, according to Thomson Reuters I/B/E/S.

"I figured after that quarter, what more did you need to know to stay away from this stock?" Cramer said.

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However, Elizabeth Arden sent Cramer what he called 'a very polite letter' and walked him through some key aspects of their business model – specifically that they were in a turnaround phase

And there was a sentence about major repositioning that compelled Cramer to take another look at the company.

They said, "In 2012-2013, Elizabeth Arden is undergoing a major repositioning, keeping everything great about our economic brand while also refreshing packaging, counters and advertising."

Cramer was impressed.

Source: Elizabeth Arden

"Now, the product and packaging has all been redone—every piece of it—and the company's removed about 30% of its individual products from the mix in order to make it simpler for consumers," he noted.

"Also Arden has redesigned their counters, they've gone to an all-Internet-based training and technology platform. The result? Well, retail sales at flagship stores that have fully implemented Elizabeth Arden's brand remodeling are up 24% year over year in the United States, and up 9% internationally, so the plan is working," he said.

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Cramer also likes that Elizabeth Arden is still a huge player in the North American fragrance market. Arden has almost 70% market share in the mass retail channel, they have 50% market share at chain drugstores, and they have 5% share in prestige department stores.

Cramer added, the next leg of Elizabeth Arden's growth trajectory is going to be international, which currently accounts for 34% of the company's sales but is getting much larger.

He finds that aspect of the business very bullish because the market for beauty products is expanding rapidly in the developing world.

Of course there's the issue of the lackluster earnings.

"The thing that most damaged the stock was that Elizabeth Arden slashed its guidance for 2013 dramatically," Cramer explained. "However, my view here is that management has already reset the expectations at a lower level. At these levels, Elizabeth Arden is pricing in all of the negatives from the quarter, but it's not factoring in any of the positives from the ongoing turnaround," he said.

"Yes, I am now convinced that this is a genuine turnaround play, albeit a speculative one," Cramer admitted. "I'm giving it my blessing as a buy, but only for speculation as turnarounds are about the roughest corporate transformations imaginable."

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